Westlake Chemical plans ethylene IPO

Westlake Chemical Corp. has separated its ethylene assets into a tax-advantaged venture in which it plans to sell shares to the public.

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By JACK KASKEYBloomberg

Westlake Chemical Corp.,
the US plastics maker controlled by the billionaire Chao
family, has separated its ethylene assets into a tax-advantaged
venture in which it plans to sell shares to the
public.

The master-limited
partnership (MLP) includes three US ethylene plants and a
200-mile (322-km) ethylene pipeline. Ethylene, the most common
petrochemical, is used to make
products from plastic bottles to autoparts and pipe.

Westlake is creating the
chemical industry's first MLP after the Internal Revenue
Service in October 2012 ruled that companies converting ethane
and other natural gas liquids (NGL) into olefins like ethylene
can classify themselves as such. The partnerships, common in
the pipeline industry, generally do not pay income taxes at the
corporate level.

Westlake will own 90% of
the venture's operating company, leaving the remaining 10% as
the MLP's sole revenue source, according to the filing. The
unit will sell Westlake ethylene for making plastics at a 10
cent-per-gallon premium over production costs.

The move comes as
earnings at US ethylene producers, from Westlake to Dow
Chemical Co., are near record levels after a shale boom created
plentiful and cheap supplies of NGL. That provides a cost
advantage over producers in Asia and Europe, where oil-derived naphtha is
the main feedstock.

The assets in the
partnership generated $1.2 billion of revenue and $367.1
million of earnings before interest, taxes, depreciation and
amortization last year, the MLP said. Westlake would have
accounted for about 70% of the partnership's ethylene sales
last year.

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